Insolvency Law at Ecuador
In Ecuador, insolvency law is governed by the Organic Law of the Monetary and Financial System (Ley Orgánica del Sistema Monetario y Financiero) and the Insolvency Law, which is part of the General Organic Code of Processes (Código Orgánico General de Procesos). This legal framework regulates both business and personal insolvencies and aims to provide solutions for debt restructuring, liquidation, and the protection of creditors’ rights.
Key Features of Insolvency Law in Ecuador:
Types of Insolvency Proceedings:
Reorganization (Reorganización): This procedure is designed for businesses that are facing financial difficulties but are not completely insolvent. It allows the debtor to continue operations while restructuring debt and working toward solvency.
Liquidation (Liquidación): When a business or individual is unable to meet their financial obligations and reorganization is not possible, liquidation is the next step. This involves selling assets to pay creditors, and the business is typically dissolved after the liquidation.
Initiation of Insolvency Proceedings:
Insolvency proceedings can be initiated by the debtor, creditors, or the public prosecutor.
A debtor may request reorganization if they face financial difficulties but are not yet insolvent. If the court determines that reorganization is not feasible, it may proceed with liquidation.
Creditors can file for insolvency if the debtor is not meeting obligations.
Pre-insolvency Mechanisms:
Conciliation and Mediation: Before formal insolvency proceedings, there is a process of conciliation or mediation to allow businesses and creditors to resolve disputes and reach an agreement outside of the court system. This is often used to avoid formal proceedings.
Debt Restructuring Agreements (Acuerdos de Reestructuración): A debtor may enter into an agreement with creditors to restructure their debts without going through the full insolvency process. This can be a quicker and more flexible solution.
Court's Role:
The superior court handles insolvency cases, overseeing the procedures and appointing an insolvency administrator (called a conciliator or liquidator, depending on the case).
The court ensures that the process is fair and transparent, protecting both debtor and creditor rights.
Creditors’ Rights and Involvement:
Creditors are notified of the insolvency proceedings and are entitled to file their claims. They participate in meetings to approve reorganization or liquidation plans.
Creditors are grouped into classes, and decisions related to the insolvency, such as reorganization plans, may require a vote of the creditors’ committee.
Restructuring Plan:
In a reorganization procedure, the debtor must present a restructuring plan that includes proposals for debt repayment, operational restructuring, and other measures to restore the business’s solvency.
This plan is subject to creditor approval, and the court must confirm the plan if it is deemed fair and feasible.
Liquidation Process:
If the debtor cannot be reorganized, liquidation proceedings begin. This involves the sale of the debtor’s assets to pay creditors.
The process may be supervised by a liquidator who is appointed by the court, and the company is dissolved after the liquidation is complete.
Personal Insolvency:
Ecuador's insolvency law also includes provisions for personal insolvency, allowing individuals facing significant debt to request a reorganization or liquidation.
Personal debtors can negotiate directly with creditors or enter into the same reorganization and liquidation processes as businesses.
Post-Insolvency:
After liquidation, individuals or companies may be discharged from further debts, depending on the circumstances. However, some types of debt (such as fines or criminal debts) are not typically discharged in insolvency proceedings.
Cross-Border Insolvency:
Ecuador is a member of the Hague Convention on the Recognition and Enforcement of Foreign Judgments and has provisions for cross-border insolvency in line with international standards. The law allows for cooperation with other jurisdictions when international assets or creditors are involved in insolvency proceedings.
Recent Reforms and Trends:
In recent years, Ecuador has made efforts to improve and streamline its insolvency laws, particularly to facilitate easier access for small and medium-sized businesses (SMEs) to use reorganization processes.
The government has been working on improving the bankruptcy framework to encourage entrepreneurship and business recovery.
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